Events for ETI Members

ETI Members' Roundtable 5
Corrective Actions : Sharing best practice

Littlewoods, Liverpool
1st October 2002

• Background and Purpose of roundtable
• Who participated?
• Key points from Company Presentations
  1. Littlewoods (Jo Kerr)
  2. The challenges for business of implementing corrective actions in a sustainable way (Patrick Neyts, Levi Strauss
  3. Management and systems for corrective actions (Michael Pennant-Jones, Premier Brands)
• Discussion
• Issues and common themes
   
• Advance Flyer
   

 

Background and purpose of roundtable

All ETI member organisations are required as part of their membership commitment to provide an annual progress report to ETI. All corporate members are required in particular to report on progress in monitoring and implementing the ETI Base Code according to a common reporting framework. Company reports are assessed against a number of criteria, a key one of which is the company's ability to implement corrective actions where non-compliances are found.

Analysis of the corporate annual reports for 2001 showed that the overall number of corrective actions achieved by the corporate membership as a whole remains modest. At the same time, there is huge variation between members in their performance in this area. It was therefore felt that members would benefit from hearing about the approaches taken by companies to implementing corrective actions.

The objective of this roundtable was to increase members' understanding of how to implement corrective actions, by providing:

• an opportunity for members to hear and discuss the experiences of other company members in dealing with corrective actions
• an opportunity to review ETI learning on this issue following analysis of corporate members annual reports to the ETI for 2001
• Specific case studies based on experience of companies identifying and dealing with particular areas of the ETI Base Code
• An opportunity to discuss what approaches are most effective in delivering corrective actions

 

Who participated?

21 participants attended and amongst members there were 13 companies and 2 NGO's represented. The roundtable was introduced and chaired by Alan Roberts, Chair of ETI.

 

Key points from Company Presentations

Littlewoods

Presentation by Jo Kerr, Littlewoods, Ethical Trading Co-ordinator

Littlewoods currently deals with some thirteen hundred suppliers in over 73 countries worldwide. These numbers are constantly changing as new suppliers are taken on board and others are dropped from the list. Littlewoods aims to audit each of these suppliers and measure their compliance to the Littlewoods Code of Conduct for the supply of merchandise. This code mirrors the ETI Base Code.

Case Study of a company supplying toys to Littlewoods.

This supplier has a world-wide customer base and has been audited on countless occasions by a professional audit company. Initially the supplier refused to sign up to the Littlewoods code of conduct or to allow the factories they do business with to be visited by a Littlewoods audit team. In response to this a face-to-face meeting was arranged between the supplier and the Littlewoods ethical trading manager. After some discussion, it was agreed to allow a Littlewoods audit team in to one of the "flagship factories" to carry out a full audit.

Audit Result

The supplier was confident that Littlewoods would find nothing, other than that already unearthed by the professional audit company. Yet the audit team discovered serious health and safety issues and multiple employment issues including:

• excessive overtime was being worked (on some occasions between 100 -120 hours per month)
• No paid leave entitlements
• Workers being paid below the legal minimum wage

Supplier response

The supplier took a positive view to what had been reported. This was due to time being taken to ensure an understanding of why the following action was beneficial and made sense to both the supplier and Littlewoods:

• Development of a Wages Review Committee
• Development of a Health and Safety Committee

Following this, worker committees now meet regularly with management to discuss any pay, benefits or workplace issues. Furthermore on the improvements outstanding the supplier was active in the drawing up of a common sense proposal that would allow the factory to make the necessary improvements by the end of the month. The supplier also arranged for all 9 factories they do regular business with to be sent a copy of the Littlewoods Code of Conduct.

Littlewoods are visiting sites already audited by professional social auditing companies and in some cases are uncovering serious non-compliance's missed by these other organizations

LESSONS

• You need to have a good auditing process which is able to identify non-compliances in the first place - don't accept the results of professional audit companies without question. Good auditing means questioning discrepancies, talking to the workers as well as checking the local labour laws and being armed with all the details at the audit.
• Take time to ensure the supplier understands the rationale and benefits of proposed corrective actions.
• Be patient and persistent - be prepared to work slowly towards improvement and maintain continuous dialogue with suppliers.

For full presentation notes, contact Adil: adil@eti.org.uk

Question and answer session

Q: Is there a problem of audit companies not identifying non- compliance issues?

There are different standards between audit companies and even within a company. The current lack of regulation exacerbates the situation.

Q: How much emphasis should be given to worker involvement?

This is an essential part of any audit system and should be done randomly and anonymously. Ensure employers and employees know that they are being involved in an audit and pose similar questions. If answers then differ go into the subject in more depth. Ensure workers are in a comfortable environment with no managers or supervisors.

Q: How much time is needed to an audit properly?

The time taken will depend on the size of the factory, but the process is the same. It is important to have time to do the audit properly. To prevent doctoring, ask for documents on the day. Follow up is vital and particularly to ensure workers have not been victimised.

The challenges for business of implementing corrective actions in a sustainable way

Presentation by Patrick Neyts Levi Strauss & Co - Head of Enviroment Health & Safety

Supplier Dilemma

Suppliers are becoming tired of codes and corrective actions in light of different auditors from different companies asking for different corrective actions. If a supplier is faced with one audit company asking for 20 corrective actions and another 50 the result will be confusion and cynicism.

If you do not make them understand why corrective actions are important, the process is futile.

Complexity

There needs to be more thought and discussion on both non-compliance issues and corrective actions. For example: Overtime - excess overtime is not allowed but what about when workers request it? Additionally Levi's will ask for the corrective action plans of other companies to determine what the supplier is already facing. This also assists in the introduction of management systems which have to be built up. Throughout, it is essential the focus be on what is critical and more importantly what is critical to the worker. The worker is central and critical to any process.

Size

The size of the company must be taken into account as this will impact on the corrective action implementation and how it will be perceived.

Cultural Diversity

Don't be arrogant. It is very important to engage with local stakeholders and to recognise that working conditions in a factory may differ immensely from conditions outside the factory. This needs to be taken into account when for example a company spends a substantial amount of money on the factory and yet the workers have not got enough to feed their families. This can cause resentment or conflict. Other factors such as race, religion, ethnicity, gender composition will also require careful consideration and are key to ensuring corrective actions are implemented in a sustainable way.

For full presentation notes, contact Adil: adil@eti.org.uk

Question and answer session

Q: How can companies achieve a common focus on corrective action plans?

Every company will have its own view, for example, different perspectives on ILO conventions, which then result in contradictory corrective actions.

E.g. China - there are 9 different definitions of what should be in a First Aid Kit. To prevent this ad-hoc approach there needs to be a form of prioritisation on what issues need to be addressed. In our experience priority should be given to non-compliances that a) are a threat to life and / or b) constitute a non-compliance with local law. Appropriate corrective actions then need to be formulated with input both of management and workers.

There then needs to be follow up on 3 levels

• Contractor to self certify - through documents, photos sent to company
• Sourcing organisation to follow up
• Original assessor to go back in

Notably, Levis experience is that workers need time to provide auditors the important information. Resource issues may be a barrier but using more innovative techniques to draw out issues, which are much more interactive such as visual role-play, can be extremely beneficial.

Management and systems for corrective actions

Presentation by Michael Pennant-Jones, Premier Brands, Technical Audit Manager

There are two key areas which are essential when implementing any corrective action.

1. Management : the persons responsible for implementing what the auditors communicate
2. Systems : a system to apply change and ensure its sustainability

Corrective action example.

Issue: Non-payment of accumulated overtime.

Action: All outstanding overtime to be paid off, and all subsequent overtime to be paid monthly. Tight controls on overtime to be implemented.

Supplier feedback: All overtime paid off and now being paid monthly. All overtime now tightly controlled.

What was the Impact?

Corrective action was successful - Overtime was fully paid, and thereafter paid monthly.

But, the corrective action did not solve the underlying problem. Although wage calculations were changed they were re-calculated (not as daily) on a productivity calculation which resulted in unfair piece rates. In practice this often meant 12 hrs work for about 8 hrs pay. This allowed the factory to meet productivity targets set by their head office by creating a 'false economy'. Previous unpaid overtime had not been declared.

This was due to a number of reasons but most importantly due to not ensuring that a system was implemented to manage production / planning issues and their labour issue effects on the workforce.

What were the solutions?

• Integrated production planning system
  Using previous data, an increased co-ordination between field and factory, managers, accountants, shop steward-planning meetings
• Workers to be multi-skilled
  Workers skilled in many areas could be switched to different areas, negating the need for extra specialists to be employed and to give the core workers 8hrs work everytime.
• Flexible shift patterns
  Flexibility through shifts to increase between 1-3 shifts at short notice
• Labour requirement forecasts
  Communication with shop stewards and workers over labour requirements and patterns.
• Proactive machinery maintenance programmes
  Maintain machinery to high standards to prevent break down during production (one of the main causes of inefficiency)

These solutions were implemented through management and supervisor meetings and regular communication with shop stewards and labour representatives.

In addressing these issues the benefits included; factory meeting and exceeding productivity targets, workers fully remunerated and better motivated demonstrated that good labour practice could help in improving efficiency and lowering costs.

In light of the above an example of a basic Premier audit cycle is as follows:

• Initial pre audit process; preliminary questionnaires, communication with suppliers, unions and NGOs; followed by the audit.
   
• feed back issues uncovered to the management and discuss these.
   
• full report and corrective action plan discussed with the managers is drawn up.
   
• written feedback from the management on action taken, planned or not taken (and if not why not).
   
• Critical issues will be re-audited the following year and all non-critical will be audited every 3 years.
   
• Management participation / input
   
• Systems to identify and implement solutions

NOTE: These last two areas while part of the process are continual and on-going outside of the formal audit process.

What should the auditor do?

• Look to promote on-site systems to resolve issues.
  Promotion of systems through which existing and future issues can be managed and resolved.
   
• Promote good industry solutions
  Obtain examples of good practice, ideas that have been tested and are working.
   
• Encourage visits on multi-site operators
  Where a supplier has many sites encourage cross-visits by management, committees (H&S) to stimulate and encourage a total quality management type mentality in the organisation.
   
• Build information on local resource networks for the producer to feed into.
  Where a supplier needs help and input; put together a link of formal or informal contacts e.g. NGOs -specialising in AIDS, health & safety training, wage systems building
   
• Push not just the ethical case but also the business case.
  Importantly the business case is the crux of for the manager. With possibly shrinking profit margins the benefits have to be indicated, both direct and indirect.
   
• Ensure the process sits in a positive commercial context.
  Keep the pressure and the motivation on. Direct links with buyers and integration of the ethical with the buying departments.

What should the audit/auditor bring?

• Knowledge of the particular industry/process. It is key that any auditor should understand the industry and process. Many labour issues/problems are caused by the nature of the industry and only solutions that address those underlying problems will work.
   
• Continuity of auditor (judgment, values, focus relationship building) Using new auditors every time lacks continuity as every auditor will have a different slant. Building a relationship can and will provide more information than just from an audit. We want this to be a partnership, a two-way process.
   
• Patience & trust. Build the relationship. Some suppliers will be slow and some will be wary - it will not necessarily be a quick fix.
   
• Knowledge to facilitate solutions and solution building Ability to assist on issues uncovered. It is pointless opening a can of worms if you cannot help the supplier resolve them.

For full presentation notes, contact Adil: adil@eti.org.uk

 

Discussion

Q: How should companies deal with the identification of a non compliance to a company code or ETI base code when it is an acceptable part of the countries culture and/or is legally acceptable? For example: Disciplinary practice of suspension without pay, freedom of association.

Pat Neyts. Levis: We have to be very careful not to use local law or culture as an excuse to circumvent internationally agreed ILO Conventions. Of course there is a need to be sensitive but also to go for the highest standard available. We should be looking not for what is required but what implementation is needed to achieve the highest standard.

Q: How should companies deal with the relocation of sourcing?

In some cases the company can only manage the impact of how the move is made for example loss of jobs. There can be various reasons for relocating but it is important to know where they are going and to address any previous issues or non-compliances that may have arisen. This may impact on the workers in that country.

Q: Should the supplier, company or consumer pay for the corrective actions?

It is important to note that although there is an initial cost for improvements, this will result in more efficiency and therefore overall cost will decrease. Some companies take the initiative in response to an increase in consumer awareness. There is also the overall responsibility of governments in enforcing internationally agreed conventions.

 

Issues and common themes

Points which need to be addressed;

• A need for a credible common standard and approach is essential and one that can be put it into practice.
• need for consistency in approach e.g. auditor follow up
• Involvement of ALL local stakeholders e.g. management, TU, NGO's
• Long term commitment to working with suppliers from companies
• Commercial pressures to be addressed to ensure a level playing field for all companies
• A real knowledge and understanding of what the issues are by companies, trade unions and NGO's.
• Collaboration - A group of companies will have a greater impact through joint action
• Local Solutions will ensure sustainability.
• Training is needed for suppliers on what the ETI Base Code is and what it means
• Working groups to raise awareness within a company and importantly to include buyers

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